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Hi Sir,
Was wondering how tax on saving capital allowance is calculated for this answer. I was unable to figure it out after reading the CF statement. Would be grateful if you could provide this calculation in detail.
Thank you,
Alvin
The machine costs 1.8m. CAs on a reducing balance basis are therefore in 000
1.8 x 0.25 = 0.45
(1.8 – 0.45) x 0.25 = 0.3375
(1.8 – 0.45 – 0.3375) x 0.25 = 0.2531 etcTax is saved on these at 25%, so 0.1125 ie 113, 0.084 ie 84, 0.063 is 63.
In the year the asses is sold a balancing allowance or charge is calculated by comparing the written down value of the asset to the sales proceeds. The tax cash flow effect is 25% of this amount.
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